First, there was Peter Drucker, the management guru, who said that there is no one right organisational structure for all. And the whole world stood up and applauded. With due respect, Peter may have done his research, but seriously, it doesn't take more than common sense to know that. We have to look at the size, the complexity, the nature of business of the company. There is no one size fits all.
Now, in management control system (MCS), we have Professor David Otley. Who, you ask? Well, Professor David is credited for answering the question: Is there an appropriate accounting-based control system which will suit all organisations in all situations? The answer? Need you ask? And this is what triggered the Contingency Theory.
(Warning: The rest of the post is purely academic stuff)
What then, is MCS? MCS is what my lecturer describes as the "cementing" factor between the senior management in their strategic planning and the people involved in executing the plan and in the operational control. In an ever-changing business environment, an organisation would do well to anticipate, and adapt to any changes, technologically or otherwise. To faciliate that, the senior management would need to pass down information to the ground staff, and to receive relevant feedback. Thus, MCS is critical to the success of an organisation.
Professor David, in his study, has identified specific aspects (ie. contingent variable) of an accounting system that are associated with certain defined circumstances and to demonstrate an appropriate matching. In other words, he has come up with some considerations in designing a MCS under different situations.
The major classes of contingent variables are as followed:
1) Environment (eg. degree of competition)
2) Technology (eg nature of manufacturing process)
3) Size (and complexity, as further growth is achieved by diversification)
4) Strategy (eg differentiation or cost leadership)
5) Culture (the value system of the organisation, or the language that comprise its culture.)